It’s time for resolve – Wacky Tax Wednesday
- Sales and Use Tax
- January 3, 2018 | Gail Cole
Although I’m not much for New Year’s resolutions, I understand their appeal. Who wouldn’t benefit from setting sights on a goal, whether somewhat traditional (e.g., eating better, exercising more), or more personalized (e.g., a new job)? Since I think about all this at the start of every year, I wonder how sales tax factors in with the choices we make.
A better diet tops many resolution lists. To help promote healthy eating and offset the costs of poor diets, there’s a growing trend among cities and states to tax sugary foods and drinks at a higher rate. On Jan. 1, 2018, San Francisco and Seattle became the latest cities to impose a special tax on sweetened beverages, following the path blazed by Berkeley, Philadelphia, Vermont, and others. On the same day, Arkansas removed candy and soda from its list of “food and food ingredients” qualifying for a reduced rate of tax.
The Navajo Nation has taken additional steps to encourage healthy choices: On top of a 5-cent sales tax, it imposes a 2 percent tax on “all minimal-to-no-nutritional value food items sold.” Fresh fruits and vegetables are exempt, as are some nuts, nut butters, and seeds.
Yet so-called junk food isn’t the only food that can lead to poor health consequences. “Americans are expected to eat more meat in 2018 than ever before,” which can lead to its own set of health problems. Will we one day find ourselves paying higher taxes on meat?
Lots of us vow to exercise more at the start of a new year, and though there are plenty of free options (e.g., walking, push-ups), many people find classes or gym memberships to be more inspiring. While most states have traditionally exempted most services from sales tax, there is a movement to tax fitness classes and gym memberships in a growing number of states.
Yet if there is cause to tax products that arguably lead to poor health, like soda, isn’t there also cause to exempt exercise? It seems there is, for some states find it hard to follow through on their intention to tax it.
For example, in the 2.5 years my daughter has been studying martial arts in Washington state, the taxability of her classes has changed from exempt to taxable to exempt again. Missouri has been similarly conflicted, long taxing instructional classes such as dance, fitness, and yoga, then exempting them(overriding the governor’s veto to do so), and ultimately prohibiting the taxation of any service not already taxed as of Jan. 1, 2015. And the City Council of the District of Columbia had to override the mayor’s veto to tax health club services, which include yoga and other fitness classes.
Get a job
New jobs or new employees may fall in the laps of some individuals or businesses, but for many, they result from the help of employment services. It can be a complicated process, much like determining the taxability of such services in the few states that tax them.
For example, Connecticut tax law makes a distinction between procuring permanent employment versus short-term employment. If the position is permanent, the employment service is taxable — unless the job procured is out of state, in which case the service is exempt. If it’s a one-time or short-term placement and the job seeker remains an independent contractor, the employment service is exempt.
The state also has specific tax laws for personnel services that “involve the placing, for a consideration, of an agency’s own employee with a service recipient for the purpose of having that employee act as the employee of the service recipient during” a set period of time. Generally, for a personnel service to be taxable: 1) an employer must directly employ the temporary employee, and 2) while the employee is with the service recipient, the service recipient must have control over how and what work is done. If these two conditions aren’t met, the service may be exempt.
Sticking with a resolution can be tough, and throwing taxability into the mix tends to complicate matters. When possible, it’s best to put sales tax in the able hands of professionals, like the tax automation specialists at Avalara. Learn more.